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A hedge fund launched by a team formerly at Harvardâs $22.6bn (â¬17.27bn) endowment has decided to hive off its private equity operations as direct investing becomes an increasingly bigger business for many hedge funds.

The new private equity business will include 32 employees and will be headed by Stuart Porter, who runs Sowood’s private equity group and will become a founding partner of Denham Capital.

Sowood will keep 59 partners and will be led by founder Jeff Larson and Megan Kelleher, both of whom are managing partners. Kelleher is also the firm’s general counsel.

Larson said: “Over the last two years, our private equity capability has grown tremendously. At this point, we essentially have completely independent investment businesses. By formalizing that independence, we believe we maximize the flexibility – and opportunity for success – of each business.”

Sowood was formed in early 2004 by former employees of Harvard Management Company, which manages Harvard University's endowment. Sowood has roughly $3.5bn under management and manages some alternative assets for Harvard’s endowment.

Both Denham and Sowood will continue to maintain their relationships with Harvard’s endowment, which this year came under the stewardship of Mohamed El-Erian. El-Erian has been revamping the endowment’s investments in order to improve returns.

El-Erian said: “Harvard’s endowment has benefited from its long term association with Sowood Capital Management through its investments in the Alpha product and the commodity funds. We look forward to deepening this relationship and believe that the proposed institutional changes would serve to further enhance the investment return generation capabilities of both Denham and Sowood.”

Related

Many hedge funds are growing increasingly closer to the private equity business, including Eton Park Capital Management, founded by former Goldman Sachs star Eric Mindich, which puts a third of its money into private equity. Odyssey Partners and Pequot Capital, among others, also have private equity operations. Hedge fund Centerbridge Partners has also recently raised $3.2bn for a private equity fund to invest in distressed companies, the Private Equity Analyst reported.